BackFDI flows plummets 16% in FY23 to USD 71 billion
FDI flows plummets 16% in FY23 to USD 71 billion first time in 10 years.
PremiumAccording to statistics from the RBI, gross foreign direct investment (FDI) flows fell to USD 71 billion annually in 2022–23 for the first time in ten years.
"Gross inward FDI flows stood at USD 71 billion in 2022-23, registering a decline of 16.3 per cent on a y-o-y basis," as per an article published in the RBI's latest monthly bulletin.
Net FDI too declined by nearly 27 per cent to USD 28 billion in 2022-23 as compared with USD 38.6 billion a year ago, mainly due to moderation in gross foreign direct investment inflows and an increase in repatriation, RBI's latest monthly bulletin further added.
Pranay Mathur - Partner & CEO, Real Time Angel Fund said “With the correction in global equity market the hype which happened in last two years is no more repeating and hence the FDI is decreasing in 2023. India shall see FDI increase once the market is again ready to invest in growth stage companies."
In comparison to inflows in 2021–2022, the yearly reduction equals 16.3% in 2022–2023. Gross FDI inflows increased by 10% from fiscal 2019–20 to USD 81.97 billion in 2021–22. The last time FDI decreased year on year was in 2012–13 when inflows fell by 26% to USD 34.298 billion.
A R Ramachandran, Co-founder & Trainer-Tips2trades said "A fall in FDI investments for the first time in a decade points to a clear global & domestic slowdown coupled with a higher base effect over the past year after the COVID lockdowns. This trend coupled with negative FII inflow in the calendar year 2022 indicates that a clear focus on improving manufacturing efficiencies, more business friendly economic policies to attract MNC's coupled with improvement in technology and software could help India to stand out amidst a massive global slowdown in the coming year."
The industries that had the biggest fall in FDI inflows compared to the previous year were manufacturing, computer services, and communication services. The US, Switzerland, and Mauritius were the three countries that contributed most to the decline in inflows during the same period.
Sonam Chandwani, Managing Partner KS Legal & Associates, said "Foreign Direct Investment (FDI) constitutes a critical lifeblood for a country's economic growth, technological advancement, and job creation. In the face of a declining FDI trend, nations, including India, must enhance their appeal to international investors. This involves the creation of a robust, transparent, and stable regulatory environment that minimizes bureaucratic red tape and expedites business operations. The fortification of both physical and digital infrastructures, encompassing transport systems, internet connectivity, and power supply, also stands paramount. Equally vital is the cultivation of a skilled and educated workforce that aligns with the dynamic needs of global industries. Ensuring political stability and proactively communicating policy measures can provide the predictability that foreign investors desire. By creating such a conducive ecosystem, countries can become irresistible hubs for foreign direct investments, thus paving the way for economic resurgence and sustainable development."
Shreyas Kudalkar, MD & CEO Kings Life Nidhi Ltd said “Analyzing the 16% decline in foreign direct investment (FDI) in India during FY23 reveals a complex situation. Several factors contribute to this trend, including changes in the global economy, uncertainties in policies, and the evolving dynamics of the market. To address this decline, it is important to understand the underlying causes, find areas that need improvement, and develop strategies to attract investors once again."
“Creating an environment of stability, transparency, and appealing incentives is crucial for India to revive FDI and promote sustainable growth. By doing so, India can position itself as an attractive destination for investments. The government is relying on significant investments from global companies to boost manufacturing activities in important sectors like electronics, chemicals, automobiles, and textiles. This effort aims not only to meet the demands of the domestic market but also to increase exports and integrate India into the global value chain.It is worth noting that among developing countries, India has been recognized as one of the largest recipient of FDI for setting up research and development (R&D) centers by multinational companies. This highlights India’s potential to excel in innovation and technology-driven industries," said Shreyas Kudalkar.
“As we strive to revitalize FDI inflows, we need to analyze the situation carefully, develop effective strategies, and remain determined. Together, we can create a future where India emerges as a strong player in the global investment landscape, fostering growth and prosperity," Kudalkar further added.
According to "fDi Intelligence," cited in the bulletin, India received USD 26.2 billion in FDI in the semiconductor sector in 2022, behind only the US ($33.8 billion).
Massive investments in capital-intensive chip FDI projects are underway, in line with the Government of India’s efforts to develop the industry, the article said.
Saket Dalmia, President, PHD Chamber of Commerce and Industry said “The Global Economic Situation remained volatile and uncertain vis a vis geopolitical tensions and high inflation in 2022-23; as FDI depends upon the benign global economic conditions, the deceleration in FDI in such a problematic year should not be a worrying factor, we look forward to a great recovery in FDI in the current financial year 2023-24 as global headwinds are diminushing and inflation is cooling down."
Additionally, it was said that foreign portfolio investors (FPIs) turned from being net sellers to buyers in April, notably in the equity category (USD 1.9 billion), which was supported by an inflow in the debt segment (USD 0.2 billion).
With inputs from PTI
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